How to claim a VAT refund in the UK: A guide for businesses
If you run a business or travel for business to the UK, you could be saving 20% on the goods and services you buy (the current UK standard VAT rate). But there is a prerequisite that the goods must be bought for business use.
The path to claiming back VAT (value-added tax) is not straight. You will need to navigate a complex set of rules and exceptions. To add, they differ for UK-based and non-UK-based businesses.
The article will map out the route of the refund process in both cases.
Overview:
For UK businesses
UK VAT refund: Who is eligible?
Are you VAT registered, charge VAT on sales, and pass it on to HM Revenue & Customs (HMRC)? If so, you can claim a VAT refund.
If your “VAT-taxable” turnover (sales turnover that is not VAT-exempt) for the last 12 months has crossed £85,000, you are liable to register for VAT. If your sales turnover is below this level, you may also register, if you wish to, and you will enjoy a tax saving of 20% on business expenses.
UK VAT refund: what products and services are eligible?
You can reclaim VAT on almost all business expenses. These include raw materials, office equipment, rent, professional services, employee compensation, etc.
However, when it comes to VAT on vehicles, fuel, and travel expenses, you are eligible to the extent they are related to your work.
UK VAT refund: what products and services are not eligible?
The cardinal rule is that you cannot claim VAT on personal use purchases. In addition, you cannot claim VAT on:
- Business expenses towards VAT-exempt products and services (for example if you provide insurance services).
- Business entertainment costs (for example, complimentary theatre tickets to clients). However, a VAT refund against a staff party costs is permissible.
- Business assets that are not purchased by you, but transferred to you as a ‘going concern’.
- Second-hand goods – bought under one of the VAT second-hand margin schemes.
What you can claim in special cases
Nothing is a cut-and-dried case, not even with HMRC.
If you use certain items for both personal and business purposes, you can apply for a proportionate VAT refund. For instance, if your office is 10% of the floor space in your home, you are entitled to only 10% of the VAT on your utility bills, and you have to provide proof of how you calculated the allocation.
If you sell both VAT-exempt and VAT-liable goods or services, you get a partial exemption. You can recover the VAT only on purchases related to taxable goods.
If you spend on high-value capital assets like buildings, machinery, and computers, you can use the Capital Goods Scheme to stretch your VAT claim over several years. This will benefit you as both your purchases and sales will increase over the years.
How to claim a UK VAT refund
If you’d like to make a VAT refund application, here are the things you need to do:
Fill out your VAT return form
Every quarter you must submit a VAT return to HMRC. On the form, fill in your total sales and purchases (including those VAT-exempt), along with the VAT paid and charged.
Make your VAT refund claim
Based on the above step, calculate your claim. To make the claim, you will need to fill Box 4 on your VAT return with the total amount of VAT you are reclaiming. For a valid claim, make sure all boxes on the form are filled.
Submit your VAT return form
Once you have completed your VAT return, submit it to HMRC either electronically or by postal service. Repayments are usually made directly into your bank account within 30 days.
Need more information about tax thresholds in the UK? Check out our article by clicking the link!
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Businesses registered outside the UK
Who can reclaim VAT?
If you are a UK business traveller, you may need to buy products and services during your visit. Well, you can use the VAT Refund Scheme and shop tax-free if your company:
- is registered in your home country
- does not own a UK residential or office property
- does not sell goods and services in the UK
Who is eligible for a UK VAT refund?
As a business traveller, most of your work-related expenses are eligible for a VAT refund. This includes travel, accommodation, and trade event participation.
What is not eligible for a VAT refund?
You are not eligible for a VAT refund on the purchase of goods not related to your business such as:
- purchase of a car
- purchase of any item for resale
- purchase of any item for entertainment
What you can claim in special cases
You may need to import goods into the UK (for example, equipment to exhibit at a trade fair). You may have to pay VAT on them at the point of entry or customs here. As they are not intended for sale, you should be able to get a VAT refund under the VAT Refund Scheme.
Get in touch with one of Sleek’s many experts today!
How to claim a VAT refund
If you’d like to make a VAT refund application, here are the things you need to do:
Fill out your VAT refund form
You can apply for a VAT refund by submitting form VAT65A. As you are a visitor, you can authorise an agent to act on your behalf. There is no upper limit on how much you can claim but there is a minimum claim amount, below which HMRC will not entertain your claim.
Submit your VAT return
HMRC considers 1 July to 30 June as the prescribed year for VAT submissions. You must submit your claim within 6 months of completion of the ‘year’ you were charged the VAT. So, every year, 31 December is the deadline.
If you miss it, you cannot make another claim for that year. But if you are a regular visitor to the UK, you can claim it in the next year, as long as the VAT charged pertains to the calendar year.
Most importantly your claim will not be accepted without your original certificate of VAT registration in your home country. And you need to give a fresh certificate every year, as it is valid only for 12 months.
Wait for your tax refund
The wait is not long. HMRC pays refunds within 6 months of receiving your claim.
If your claim is refused, do not fret. You can either ask HMRC to review the decision, or you can appeal to an independent tribunal. It is advisable to get professional help here. Sleek can give you proper guidance and legal assistance.
VAT paperwork
Without accurate paperwork, processing VAT refunds is next to impossible. HMRC doesn’t look too kindly on false claims, even when unintended. Not only will you pay back the amount, but you may end up paying a penalty for sending an incorrect claim.
To ensure a correct claim, first you need to look at the basics:
- Are you VAT registered?
- Is your supplier VAT registered?
- Is a valid VAT invoice given?
- Is the rate charged correct?
Then you will need to do the legal work:
- collecting revised invoices
- submitting claims
- preparing appeals against HMRC decisions
- obtaining refunds where VAT is incorrectly charged
Yes, the refund process is a tall order. Sleek offers you refund services to save you the hassle of the refund process. We not only claim VAT refunds for you but also ensure you get the maximum refund amount.
VAT refund: A specialist’s job
A VAT specialist accountant does much more than handle your deadlines and documentation. Your business may require specific solutions.
From deadlines to refund documents, professional accountants are well-versed in the nitty gritty of the VAT refund process, We would be happy to tell you more about our VAT refund service. Email us your queries or book a free consultation with us.
FAQs
Yes, you can use your first VAT return to claim the costs you incurred before
VAT registration, provided the goods and services:
- are still in use like laptops or equipment
- were bought not more than 4 years before registration (6 months in the case of services).
Yes, you can claim business travel expenses. HMRC considers a self-employed person as an employee of his own company. But you cannot claim a client’s business trip expenses. You also cannot reclaim VAT if you pay your employees a flat rate for expenses. Travel expenses include transport, meals, and accommodation.
Yes, you can claim VAT expenses on a new car or commercial vehicle as long as it is not for personal use. If it is given to an employee for work travel, it must be mentioned in the employee’s contract. Travelling between home and work is considered personal use.
You can claim VAT charges on total fuel costs as long as it is spent on work. But if the fuel expense is for both business and personal reasons, there are 2 options:
- claim a 100% VAT refund and pay a fuel scale charge.
- keep detailed mileage records and submit a claim only on fuel used for work trips.
